Acquisition faces many regulatory, court hurdles

Dec. 17, 2013

Written by

John R. Nelson

Poughkeepsie Journal

By March, the landscape of health care in the mid-Hudson Valley could look remarkably different.

That is, if a number of regulatory approvals and court motions go through in the timetable put forth Tuesday by LaGrange-based Health Quest. It intends to acquire the Town of Poughkeepsie Saint Francis Hospital and Health Centers after it emerges from bankruptcy.

Saint Francis filed for Chapter 11 protection in U.S. Bankruptcy Court on Tuesday, and Health Quest has offered to acquire it for $40 million.

Chapter 11’s purpose is to rehabilitate a business’ finances through a court-approved reorganization plan. This action frees a company from the threat of creditors’ lawsuits while it reorganizes its finances. The debtor’s reorganization plan must be accepted by a majority of its creditors.

Health Quest’s goal is to combine Saint Francis Hospital with Vassar Brothers Medical Center in the City of Poughkeepsie and operate the two as one hospital on two campuses.

To complete that acquisition, however, the two separate entities need to clear hurdles, both regulatory and in court.

David Ping, senior vice president of strategic planning and development for Health Quest, exclusively told the Journal on Tuesday that the first motions will be made in Bankruptcy Court this week and then the court will consider those motions through the rest of December.

Throughout this period, Saint Francis will provide the same services its customers expect with no interruption, CEO Dr. Art Nizza said. Nizza emphasized that during the bankruptcy process Saint Francis will continue operations and will employ and pay its staff as usual.

In January, other interested entities, if there are any, can make their own bids for the acquisition, Ping said, and then Bankruptcy Court would make its determination about the winning bid.

“It is possible someone else could have a bid in the Bankruptcy Court,” Ping said.

By March, the bankruptcy would be over, and, if the court approves, Saint Francis would become part of Health Quest, Ping said.

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“Depending on how fast things move, the two hospitals would begin to operate as one entity,” he said.

Beyond Bankruptcy Court, regulatory approval will be needed for the deal to go through, possibly from the Federal Trade Commission, the state Attorney General’s Office, state Health Department, state Office of Mental Health, the American College of Surgeons, and others.

The FTC recently ramped up its enforcement. On its website, the commission states that when health care markets are competitive, consumers benefit from lower costs, better care and more innovation.

New York flexed its regulatory power in the opposite direction in October, when Gov. Andrew Cuomo extended antitrust immunity to a health care corporation in Nassau County wishing to establish collaborations with other care providers.

With the possible deal for Health Quest to acquire Saint Francis, the diversified health care nonprofit would control every hospital in Dutchess and Putnam counties: Putnam Hospital Center in Carmel and Vassar Brothers Medical Center/Saint Francis Hospital and Northern Dutchess Hospital in Rhinebeck.

The state Attorney General’s Office, in collaboration with the Health Department and FTC, reviews hospital mergers for violations of the Donnelly Act, the state’s antitrust law. This month, Attorney General Eric Schneiderman announced a settlement with two general acute-care hospitals in Utica, Oneida County, resolving concerns their affiliation would harm competition there.

Health Department approval would depend on whether the services are being maintained and continued in the community, Ping said. “We are getting a sense from them that they believe that this needs to happen,” he said.

Approval from the Office of Mental Health would be needed because of Saint Francis’ mental health services, Ping said, and the American College of Surgeons would need to approve because of Saint Francis’ Level II trauma center.

The FTC has sued to prevent parties from merging when a deal would threaten to raise prices or reduce quality of health care, according to its website.

It also has challenged consolidations where health care providers could fix the price they charge health insurance providers.

For example, a 2008 joint enforcement action by the FTC and Virginia attorney general stopped a merger of two health systems in northern Virginia that, according to the complaint, would have resulted in control of 73 percent of the licensed hospital beds in the area.

However, these lawsuits are rarely won. The U.S. Justice Department states on its website that between 1994 and 2000, federal agencies and state antitrust enforcers lost all seven cases they litigated.

Meanwhile, there were about 900 hospital mergers.

However, this local deal is not a merger. Under the proposal, Health Quest would acquire Saint Francis after it emerges from bankruptcy.